Why Moving Straight To Value Pricing Will Lead To Failure

value pricing Apr 14, 2020

Everybody in the profession is talking about moving from hourly rates to value pricing.

But people who are new to this journey, particularly people pricing services like bookkeeping and clean up work, all make a big mistake.

They try to move straight to value pricing in one big jump, and they get it all wrong.

Watch the video version here:

I have seen people posting things like this on social media so often…

“I had a go at value pricing some clean up work and it went so horribly wrong, I just went back to pricing based on the hour.”

It makes me so sad.

The problem is, for compliance services like bookkeeping, moving all the way from hourly rates to value pricing is just too big of a jump to get right.

It’s too much to achieve in one go.

Value pricing compliance services conceptually isn’t easy.

Value is subjective. You can’t touch it or feel it, you can’t easily put a number on it. What is the value of bookkeeping work? What is the value of clean up work?

But just because it’s difficult to work out, it doesn’t mean you can’t value price it. You can value price anything that has value. But it takes a while to get our heads around how we do that.

Trying to get there too fast is a big mistake. If you are currently pricing based on the hour, all I want you to do to start off on your journey, is move to fixed pricing.

Fixed pricing is not value pricing.

Fixed pricing is a form of cost plus pricing, because all we are doing is giving a price upfront based on an estimate of how long the job will take. Whereas hourly billing means waiting till the work is done and then pricing based on the time.

It’s still cost plus pricing, it’s just our best guess upfront.

The reason why people struggle with fixed pricing is you can’t know if you will make a profit if you give the price upfront, unless you properly scope out the work.

I have another blog that tells exactly you how you can calculate a fixed price.

If you want to make the move from hourly billing to value pricing, you have to do it in baby steps.

The first step is to get a system in place to give a fixed price upfront.

This is the hardest step. Once you have mastered this step, all of the following steps become much easier. Once you have a system, and you have the confidence to give a fixed price, you can begin to add layers onto that. You can…

- Use menu pricing to create different packages so that the customer has choice

- Add options to give the client even more choice

- Offer behaviour rewards

- Use price psychology to get higher prices

- Build in an up-sell, or cross-sell

- Create a system to involve the client in the pricing process

All of these things might sound complicated right now, but once you have the base of the fixed price, you can build these up slowly.

My advice is, if you are currently pricing based on an hourly rate, and you want to move to value pricing, that’s great! But don’t rush it.

Like every other big project, take it one step at a time.

If you would like to learn more about value pricing, I run a free live online training session every month which you can attend and ask me questions. Click here to register and I will send you an invitation to the next session.

And if you would like to join a community of like-minded accounting professionals learning to price more effectively and confidently, you can join my Facebook Support Group here.

Wishing you every success on your pricing journey.

Mark Wickersham

Chartered Accountant, Public Speaker and Author of Amazon No.1 Best Seller, “Effective Pricing for Accountants”

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